Color of Money
People can use the credit in advance of filing their federal tax returns. How large a credit they get is based on a sliding scale that takes into account family size and projected household income. When people enroll for marketplace insurance, they can choose to apply all or some of the credit to their monthly premium paid to the insurance company to lower what they owe. This is referred to as an advance payment of the premium tax credit (APTC).
If they end up earning too much, however, they could owe the government when they file their tax return. That happens every year. But in 2020, many workers found themselves with larger tax bills because extra coronavirus-related unemployment payments increased their income.
But under the American Rescue Plan enacted in March, excess payments owed for the advance premium tax credit were suspended for last year.
The IRS says taxpayers who have already filed their 2020 tax returns and who have excess APTC do not need to file an amended tax return or contact the IRS. The agency will reduce what they owe to zero with no further action needed. The IRS said the agency will reimburse people who have already repaid any excess advance premium tax credit.
The agency has posted a fact sheet about the suspension and refunds at irs.gov. Search for “More details about changes for taxpayers who received advance payments of the 2020 Premium Tax Credit.”
Unemployment. Many people don’t realize that unemployment compensation is subject to federal taxation. The last stimulus package, signed into law by President Joe Biden on March 11, removed the federal taxability of unemployment benefits up to $10,200 for individuals and $20,400 for married couples filing jointly. To get the tax break, your modified adjusted gross income has to be less than $150,000.
One reader wanted to know what happens if a state was late in paying the benefits. She wrote: “I did not receive my 13 weeks of eligible extended benefits for the time period covering late April 2020 to early September 2020 until February 2021, due to the backlog of unemployment claims. Will unemployment compensation monies that were for weeks in 2020 but not paid until 2021 still be eligible for this relief?”
Unfortunately, no, the exclusion applies only to unemployment benefits received in 2020, according to Smith.
As I’ve recommended to a lot of people, bookmark irs.gov. This has been a challenging tax season. You should regularly visit the agency’s website to keep up with issues that may affect your particular situation.
Readers can write to Michelle Singletary c/o The Washington Post, 1301 K St., N.W., Washington, D.C. 20071. Her email address is michelle.singletary@ washpost.com. Follow her on Twitter (@ SingletaryM) or Facebook (www.facebook.com/ MichelleSingletary). Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer’s name, unless a specific request to do otherwise is indicated.